Small Business Lending Crisis? I Don’t Think So!

Ran across this article from Fox Business titled, “How Small-to-Medium-Sized Businesses Can Navigate Lending Crisis” read full article here.  Now I understand how headlines are created to garner clicks and views, but I’ll have to admit, in the current banking climate we are in, I immediately formed an opinion about what the article was about.  The lead sentence in the article states, “Banking collapses and a weakened U.S. dollar have put a squeeze on many financial lenders, making it tough for smaller companies to find the working capital they need to stay afloat.” Now this is even more specific, implying that businesses that might otherwise qualify for and have access to affordable credit options are likely unable to obtain credit in the near future, leaving them subject to failure. Well, that certainly is a bleak outlook!  But is it true?

As you all know, I am not a lender, so I immediately reached out to my experts. They include FNBB’s Relationship Manager Michael Malone and commercial lender Andrea Randall. My question was, “What are we hearing from our customers on the credit availability issue”?  Both Michael and Andrea concurred that the community financial institutions that FNBB serves were doing just fine given the circumstances.  Do rising interest rates make pricing loans more difficult?  Certainly.  Did the failure of Signature Bank and SVB create a deposits bubble that is starving our customer FIs of the money they need to lend?  Hardly. In fact, many of our customers are reporting that they have acquired new deposits as a result of those bank failures.  So, this hardly seems like a credit crisis.

I also reached out to FNBB CEO Pax Mogenson. Amongst other talents, he is an experienced lender, and I always find his comments to be insightful.  His response to my question about the Fox Business article was as follows: “Are FNBB’s customers experiencing a credit crisis? Not at all.  This narrative is driven by mass media overreach on the SVB/Signature failures.  Obviously, the rise in rates has had some impact.  But small business owners know their community bankers.  They don’t know Jamie Dimon.  We are actually seeing a decent amount of participation activity from places/banks that we haven’t always seen”.  His take makes complete sense to me.  Are there places where some small business seeks out credit at an institution where no previous relationship exists and is rejected?  Almost certainly true.  And are there businesses that operate in the grey area, having businesses that fall into questionable areas limiting the financial institution’s ability to service them (i.e.:  Marijuana Related Businesses …). Also true.

If you are a community bank reading this and you know that you have plenty of money to lend to qualified borrowers, and you are thinking this issue doesn’t apply to you, hold on one minute.  The article I referenced above is something many of your current and prospective business customers will have access to. Maybe they were watching this report on Fox News when it aired. For certain, they are reading and watching national news media, and they may very well assume that in fact there is a credit crisis.  Maybe they don’t have an immediate need for operational cash but now are concerned that if they did, their bank may not come through for them.  This is yet another example of where you need to be communicating clearly and often about the capabilities of your institution to provide the level of services that your customers trust you have waiting for them.

Maybe this “crisis” might cause a longstanding customer to seek a line of credit, to avoid the issue of whether funds will be available.  Maybe one of your good customers is investigating an appeal from a non-bank for access to credit in the misguided belief that they would not be able to get credit from you.  Organizations like Box (Square) make it incredibly easy to acquire and tap into a line of credit.  Why would a customer of yours get a LOC from Square?  Because Square reached out and pitched that LOC to the business.  They proactively solicited the credit line.  Are you doing the same?

Take the opportunity of the banking “crisis” to ramp up your communication to your customers about all the services you are prepared to provide but pay particular attention to the business customers and their need to secure credit.  Use social media to highlight businesses who have been well served by your institution and who are doing tremendously well in providing goods and services to your communities.  These “stories” are the best advertising you can have. Then make sure that your calling officers are making contact with all of your business customers and engaging them in conversations about extension of credit. No need to wait for the customer to ask about it, be proactive.  And don’t forget to profile all your best business customers and then reach out to any company in your service area that has a profile similar to those you already have.

It has been said, “Don’t let a crisis go to waste”. In the context of how you should be communicating with your current and future borrowers, a truer statement has never been spoken.